The Port of Suape in northeastern Brazil may be pointing the way toward a new strategy of addressing income inequality in Latin America.
The Port of Suape in northeastern Brazil may be pointing the way toward a new strategy of addressing income inequality in Latin America. Part world class port, and part Economic Development Zone, Suape in one of Brazil’s poorest states has produced more than 5,000 new direct jobs, and more than 27,000 indirect jobs in its industrial park over the last four years. The project has created economic support for more than 120,000 people. And it seems to be gaining momentum.
Latin America is one of the most unequal regions of the world in terms of income distribution, and both infrastructure and economic opportunity are on the minds of leaders throughout the region. As it happens, one of the most effective tools for improving the distribution of income is well-planned infrastructure investment investment that is designed to create new economic opportunities.
Brazil, with a massive infrastructure deficit, is the country in the region with the greatest income inequalities. The Port of Suape, in Brazil’s poor northeast, seems to be an example of ”˜enlightened’ infrastructure project creation mating an ambitious infrastructure project with significant, and growing, industrial opportunities for small and medium-sized businesses.
1. The Equity Contribution of Infrastructure Projects
One of the most interesting facts about great and not so great infrastructure projects is their ability to quickly change the face of a region, physically and economically. One of the tricks in economic development is to recognize that great projects can be optimized in terms of economic benefits for the poor, and for small and medium-sized businesses, without comprising project economics. This is where leadership, vision and imagination enter the picture.
Infrastructure, in fact, is the great under-utilized player in the effort throughout the Americas to generate equity opportunities. Port, rail, water, power, telecommunications and digital infrastructure projects are brilliant with potential in terms of opportunity creation.
Well-designed, imaginative, infrastructure projects can:
- Create high paying direct jobs
- Generate all manner of new business opportunities for small and medium-sized businesses
- Contribute to the knowledge base of local communities, through the development of better schools (Brazil’s citizens only average 4.5 years of schooling)
The trick is to design project that make sense: infrastructure projects with strong economics, along with the creation of areas of opportunity manufacturing and service job creation that allows the formerly disenfranchised into the country’s economic world.
2. THE PORT OF SUAPE
The Port of Suape investment is such a project controversial from the start because of its ambitious plan to mate port ”˜privatization’ with a quantum increase in economic opportunity for an entire region. In the end the great success of the project in attracting a strong manufacturing and food processing business to a poor state has depended precisely on the imagination of the state’s public leadership in requiring that the various terminal concessionaires support a visionary economic development zone concept.
Suape is located 40 km south of Recife. The port has a strategic location along the trade route connecting New York, Miami and SÃ£o Paulo. The economic development zone is fully developed with road and rail access, power and water supply, a waste treatment facility and access to a modern communications network.
ICTSI, a world class port operator, manages the container terminal. Volume growth has been extraordinary, largely because of the economic development zone’s take-off. In 2003 the company handled 62,000 containers; this year ICTSI is on target to move between 130,000 and 150,000 units; 2005 projections, after an additional $18 million investment, are for 300,000 containers to pass through the port. The grains and liquids terminals, also managed by private operators, are experiencing similar growth.
The heart and soul of the port is the hinterland industrial zone really a 13,500-hectare economic development zone. There are currently 71 industrial and commercial enterprises in Suape, with more than $400 million invested. Five thousand direct jobs have been created this is just the tip of the iceberg according to the government of Pernambuco. The targets include another 10,000 direct jobs, and an additional $5 billion in investment.
Among the current companies installed in the economic development zone are the following: Ipiranga, Esso, and Petrobras. Many other sectors are invested in the area. For example, Refresco Guararapes Ltda (Coca-Cola), and Transportadora Cometa have all established themselves within the complex.
Obviously these firms are not small businesses, but they are exactly the kinds of businesses that create good manufacturing and service jobs for local entrepreneurs. The model is extraordinarily powerful.
A case in point: Amanco, the leading PVC pipe manufacturer in the Americas, with 23 factories between the Rio Grande and Tierra del Fuego, just announced a new factory for Suape. The $6 million investment will employ 95 people, and produce pipe for the agricultural and urban water conveyance needs of northeastern Brazil.
3. A Recipe for Increasing the Equity ”˜Pop’ of Infrastructure
There is an enormous opportunity to create equity in Latin America by leveraging new infrastructure projects so that these are configured to benefit small and medium-sized businesses indeed, so that projects are designed to create opportunities for those businesses. The impact could be extraordinary for a number of reasons.
First, Latin America currently spends roughly 1% of GDP on infrastructure, but the region should be spending three to four times that amount.
Second, the multiplier effect of infrastructure projects is amazing. It is estimated that for each $1 billion in infrastructure project investment 15,000 jobs are created. Our point here is that by employing creative imagination, and optimized design a project can double the level of job creation.
Third, and furthermore, an optimized-for-opportunity-and-business-creation project would exist as Suape exists as a platform upon which workers can create their own businesses. This would be incredibly valuable.
Ports are not a special case. Railroads offer enormous business creation opportunities to reach market, more quickly, at better prices. But to do that it might take some imaginative thinking about the number of stations, types of cars, fees and other issues that might be altered to create opportunities without threatening project economics. It is the same for rural electricity, which has traditionally created whole new hinterland economies; and it is no different for the neurons of natural gas networks that are extending throughout the Americas.
4. Final Comment.
Arguably it is as important to use imagination in developing Latin America’s next generation of infrastructure projects as it is to get those projects financed. There is no sense creating white elephants when the at-hand alternative is to create a series of infrastructure projects that enable communities, enable small and medium-sized businesses and that, at the same time, generate extraordinary returns for project share-holders. Indeed, these extraordinary returns would come about as in the case of Suape precisely because the projects were designed with a broad economic vision in mind.
In the words of one of infrastructure’s leading practitioners:
“Infrastructure development provides the vital underpinnings, the structural skeleton of economies. It is here that ”˜sustainable infrastructure’ becomes a supporting pillar of sustainable development. The long lead time for infrastructure development is rewarded with a long life cycle.” Len Rodman; Chairman, President and CEO, Black and Veatch
Norman Anderson is the President and CEO of CG/LA Infrastructure LLC, a firm specializing in competitive strategies for companies, regions and countries. This article was prepared with the assistance of Evaldo Guedes and Anand Hemnani in Brazil, and Beth Howell in Washington, DC.
ENN would like to thank Urban Age Magazine for their permission to reprint this article.